Healthier lifestyles lead to a pension pandemic

news: Healthier lifestyles lead to a pension pandemic

PENSIONS HAVE been making headlines recently in the UK, but it is not just the UK that is suffering from a looming pension crisis. It is slowly having a crippling effect on most European economies and, within the next 10 to 15 years, the ageing process could have dire consequences if action is not taken now.

Demography is playing a vital part in this unfolding chapter of political history. The number of people at pensionable age, or approaching pensionable age, is on the increase compared with the number of younger people in work who are contributing to the pension pot.

Healthier lifestyles, ever advancing medical care and consequently longer life expectancy mean that the number of people reaching and passing pensionable age has increased generation and this, with a lower birthrate, is unsettling the balance of taxpayers to pensioners.

If the situation is not addressed in the very near future, the ensuing time bomb could go off, leaving a substantial proportion of the population in pension poverty.

In 2003, there were just over three people of working age for one of pensionable age in the UK. There were more people aged between 35 and 39 than in any other age band. By 2051, there will be just over two people of working age for one of pensionable age and the number of people in the 60 to 64 age band will be the greatest.

In other wealthier European nations, the ratio of workers to each pensioner is likely to fall from four in 2005 to two in 2050. Spain, France, Germany and Italy are expected to experience significant deficits. If the number of pensioners continues to increase and the birth rate decreases, the problem will only deteriorate.

UK statistics back this up. In 1981, a man aged 65 could expect on average to live until he was 79 and a woman until she was 83. By 2051, men aged 65 now could expect to live until they are 87 and women until they are 89.

Political thinkers in Europe conclude that the way to resolve the situation is radical reform of the pension regime. Ideas include people working until they are 70, encouraging them to save more and increasing pension contributions. It doesn’t seem so long ago that those over 50 were being persuaded to retire early to make way for younger people in the workplace, but this will have to change. Indeed, reformed rules in the pension structure from A-Day, April 6, 2006, already raises the minimum retirement age from 50 to 55 by 2010.

Other options are to cut benefits and raise taxes, neither of which would be popular with either political parties or the people. Increasing taxes could also have a negative effect. Higher taxes on the work force in Europe are adding to the unemployment rate. Indeed, governments are being urged by the Organisation for Economic Co-operation and Development (OECD) to increase their labour force. In OECD countries, only 50 per cent of the work force is over 55 and, with better employment opportunities in this age bracket and less discrimination, this figure could increase by 10 per cent.

In a campaign to clamp down on tax evasion and put as much as possible into government coffers to cover public spending, the EU Tax Savings Directive stipulates that Member States have to report bank account and savings details to a client’s relevant tax authority. If you live abroad, beware of having a UK tax adviser too. All UK accountants, lawyers, bank employees and financial advisers now legally have to report any suspicion of tax evasion or risk a prison sentence. In this way, HM Revenue and Customs have acquired thousands of compulsory unpaid tax informers to haul in thousands of pounds of unpaid tax and it probably won’t be long before this too is made legal across Europe. The pensions case is so acute that all remedies need to be tested to alleviate the pressure on the public purse.

Dangerously ill funded pension systems throughout Europe are causing politicians, economists, financial and pension advisers across the board to treat the problem as a matter of urgency.

Friends of Europe (FoE) is a Brussels based think-tank for EU policy analysis. In a debate on the pensions crisis, the European Financial Services Round Table suggested that the EU should create a Pan-European pension regime to run alongside existing systems.

Pan-European pensions would allow companies to offer similar pension plans across Europe and enable migratory workers to take their pensions wherever they go. The theory is that a Pan-European pension regime would make occupational and private pension plans flexible and effectual.

The newer European countries have more chance of addressing the pensions issue successfully than older mature states with complex systems that make streamlining and reforming the pension regime more difficult.

It’s a far cry from the first Old Age Pensions Act of 1908. At that time, Lloyd George, following pioneering surveys revealing the extent of poverty among the elderly, introduced a non-contributory pension of five shillings (or 0.37 euros in today’s money) a week to be paid to each person over 70 with an income of less than eight shillings (0.60 euros) a week.

With everyone possibly required to work until nearly 70, as suggested by the recent Pensions Commission report, have we made any progress in the last century? The idea of work until you drop springs to mind, which would solve the pension crisis absolutely.

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